Category Archives: Fix it first

US PIRG just released “Highway Boondoggles: Wasted Money and America’s Transportation Future“. The report is very much in line with our Fix-it-First report, noting many new expansion projects that waste scarce funds, not consistent with the actual needs for repair, and fly in the face of long-term “peak travel” trends showing declining use of the car both per capita and flat demand overall. Sadly some states (at least 11) continue to build while they fail to maintain.

They conclude:

Reconsider all plans for new and expanded highways in light of new transportation trends and recent changes in traffic volumes. This includes highway expansion projects proposed to be completed via public- private partnerships. Just because a project has been in the planning pipeline for several years does not mean it deserves to receive scarce taxpayer dollars.

Reorient transportation funding away from highway expansion and toward repair of existing roads and investment in other transportation options.

Encourage transportation investments that can reduce the need for costly and disruptive highway expansion projects. Investments in public transportation, changes in land-use policy, road pricing measures, and technological measures that help drivers avoid peak-time traffic, for instance, can often reduce congestion more cheaply and effectively than highway expansion.

Reevaluate transportation forecasting models to ensure that they reflect changing preferences for housing and transportation among Millennials and others and incorporate the availability of new transportation options such as carsharing, bikesharing and rideshar- ing into new models.

Invest in research and data collection to more effectively track and react to changes in transportation demand.

More recent research has highlighted the importance of selecting investments wisely in key areas of the country on the basis of their economic contributions. This research has also emphasized the importance of maintaining existing assets in a good state of repair.

The roads and bridges that make up our nation’s highway infrastructure are in disrepair as a result of insufficient maintenance—a maintenance deficit that increases travel times, damages vehicles, and can lead to accidents that cause injuries or even fatalities. This deficit is in part due to a prioritization of new projects over care for existing infrastructure and contributes to a higher-cost, lower-return system of investment. This paper proposes a reorganization of our national highway infrastructure priorities to “Fix It First, Expand It Second, and Reward It Third.” First, all revenues from the existing federal gasoline tax would be devoted to repair, maintain, rehabilitate, reconstruct, and enhance existing roads and bridges on the National Highway System. Second, funding for states to build new and expand existing roads would come from a newly created Federal Highway Bank, which would require benefit-cost analysis to demonstrate the efficacy of a new build. Third, new and expanded transportation infrastructure that meets or exceeds projected benefits would receive an interest rate subsidy from a Highway Performance Fund to be financed by net revenues from the Federal Highway Bank.

In short the TEA would ” lower the federal gas tax while shifting virtually all responsibility for funding existing and new roads to state governments over five years”.

This is in contrast with current law, which would keep the federal gas tax the same (and thus decreasing in buying power), or proposals to raise the gas tax to maintain buying power in the face of declining fuel sales due both to fuel economy and declining vehicle travel. This problem will worsen with fleet electrification.

The vast majority of travel is within the same county, and thus certainly the same state (See The Hierarchy of Roads, the Locality of Traffic, and Governance for data from GPS from Minnesota), especially for big states in the western half of the US. Thus the problem is largely a state not national problem. Where there is a large share of interstate travel, states are fond of tolls (as in the northeast corridor) [See my dissertation: On Whom the Toll Falls for theory and Why States Toll for empirical evidence].

I am very empathetic with the idea of Subsidiarity, that we should deal with problems at the lowest reasonable scale of government. This mismatch (or correspondence problem) of jurisdictional authority and the locale of the problem leads to many inefficiencies. Just as the federal government should not fix potholes on my local street, and my homeowners association should not have a nuclear policy, roads should be dealt with, and funded, closest to the user without incurring excess costs due to losing economies of scale. States should (and in many case did) raise their gas taxes, and further share that revenue with local levels of government (replacing local property taxes and other sources of general revenue), to fix today’s potholes and weak bridges. (Or perhaps there would only be one level of government operating and maintaining all levels of roads in states, which might be more efficient – it is what many other utilities do).

However, I am also empathetic with the idea that there is an existing source of revenue (the existing level of federal gas tax) on which there is consensus, which should not be thrown away so that 50 more difficult political fights can be had to achieve the same level of revenue. Most of the federal gas tax is returned to the states in proportion to the amount that was generated in those states, and while there are federal government rules and regulations and stipulations that add to the cost of doing business, most of those rules and regulations are well-intentioned.

The conclusion I have come to is we should keep the federal gas tax at the level it is at, dedicate it to specific national purposes (Maintaining and Rehabilitating the National Highway System – i.e. Fix-it-First) and allow it to fade away in importance over time. While of course it is technically possible to make this change in five years, I think it needlessly accelerates the process. (I am also aware of the Overton Window, and staking out a more extreme position helps move the dialog in that direction.)

There will be inevitable change in highway funding with electrification, and little would be lost waiting until EVs and HEVs are, say, 25% or 50% of the fleet, and the country is ready for some form of state-based mileage fee in lieu of gas taxes, administered with an emergent national standard so there don’t have to be 20 transponders in each car or 50 vignette stickers on your door.

In the end not all problems are federal problems and not all solutions are federal solutions. But there are real problems, and immediately lowering the federal gas tax exacerbates the short run problem in transportation. I am not convinced that this cold turkey strategy of phasing out gas taxes in 5 years (or at at least luke-warm turkey) outweighs the negative effects of federal funding, such as building a more capital intensive system than states themselves could justify if they bore all the costs, and raising costs all around.

It takes only a few minutes of driving on Wisconsin streets in winter (or even in summer) to reach the same conclusion about local roads and bridges that national experts Matthew Kahn (University of California, Los Angeles) and David Levinson (University of Minnesota) reached in 2011 about the dismal condition of the country’s state highways: “The roads and bridges that make up our nation’s highway infrastructure are in disrepair as a result of insufficient maintenance — a maintenance deficit that increases travel times, damages vehicles and can lead to accidents that cause injuries or even fatalities.”

He further correctly diagnoses the problem:

As we drivers make our way through city streets, along local roads and down big highways, we still use up a huge volume of gas. When we refuel at the pump, our gas purchases give government — the state Department of Transportation and the federal DOT — hundreds of millions of tax dollars. License fees add additional large sums to government’s coffers.

The problem is that our state DOT, the Wisconsin Legislature and Wisconsin governors have refused to return to local government a large share of the tax revenue that is generated by driving on local streets in the first place.

Cities, villages, towns and counties cannot fix local roads with dollars that the state DOT refuses to send them. Nor can local governments afford to underfund public safety (police, fire, etc.) or other vital local services in order to literally fill in the potholes. Nor do local taxpayers and governments want — and state law makes it tough for them anyway — to raise property taxes to fill in the potholes.

So the potholes go unfilled, or get patched too late or imperfectly, year after year after year.

Where, then, do the gas tax dollars that local drivers pay end up instead? The sad answer is that, regardless of which party controls power in Madison, the state DOT sucks up most of the huge sum of gas tax revenue already collected from local drivers, and siphons it off to DOT’s wasteful pet projects.

Rather than fix local roads with tax revenues generated by local driving, DOT diverts hundreds of millions of gas tax dollars to pay to widen interstate highways that already are wide enough. And DOT diverts hundreds of millions more to finance new roads that are simply not needed.

The proposals were not identical. We identified the same problem, existing infrastructure is aging and without additional resources will deteriorate more seriously.

There is room for debate as to who should fund this infrastructure, but given the Federal government believed constructing an Interstate Highway System was of national interest, and paying for a National Highway System is of national interest, and that there are existing funds which are largely returned to the states proportional to where the revenue is generated, keeping existing revenue sources in the short term is consistent with broader policies and is politically prudent (it is easier to maintain an existing tax than to fight 50 fights in 50 state legislatures about raising new taxes to pay for the same roads).

(1) Fix-It-First: Obama wanted $50B in new funds. Kahn and I proposed redirecting existing Gas Taxes to the problem. We identified the problem as preserving the National Highway System network. There are gas taxes already spent to some extent on this problem, but gas taxes (highway road user fees) are also spent on new projects, and for transit projects, neither of which seemed to us to rise to same level of national justification. (Identifying the amount spent on transit is easy. Disentangling capacity expansion from preservation is tricky, since many reconstruction projects wisely bundle both to achieve efficiencies).

Further new projects generally have lower Benefit/Cost ratios (if even above 1.0) than existing projects, since (a) we already picked the low-hanging fruit, and (b) we have built our lives and land use around the existing network. In contrast, transit capital projects are seldom of an interstate nature, and federal funding currently distorts transit decision-making by making it very capital intensive. Further transit projects are currently funded by road users rather than by transit users (or the general population). [There are of course many pollution externalities created by car usage, which should be internalized through pollution taxes of some kind, but that should not be dedicated to road expansion, and my idealized world would be politically separate taxes. As someone playing an economist, I also am required to say by the economist’s guild “We should also have congestion charges.”]

(2) Expand-It-Second: Obama proposed a National Infrastructure Bank, ours was a more limited Highway Bank where borrowers would need to repay funds through from project beneficiaries (user charges or land value capture). Ours was a self-sustaining, independent Government Sponsored Enterprise. These are reasonably similar ideas, earlier ideas for an Infrastructure Bank have included grant-making powers, our view (and what appears to be the Administration’s current view) is that the Bank should lend money, and expect repayment, with interest, and should thus expect to be revenue positive over the long haul.

The Administration also proposed enacting America Fast Forward Bonds, and implementing the TIFIA program. Implementing TIFIA is of course current law, so that is not really a new initiative. TIFIA does many similar things to the proposed Highway Bank, but it is lodged within USDOT rather than independent. It is also not well funded. We did not have any particular viewpoint on bonds, except to the extent we envisioned the Highway Bank selling Bonds based on portfolio of projects (much like how mortgages were once bundled before financial deregulation) to raise funds, and imagine that similar tax benefits can be used. The market in the end will limit the availability of funds for self-liquidating projects. So rather than bond investors being paid from individual projects, they would be paid from a bundle of projects, lowering risk and interest payments. Many communities have difficulties participating in the municipal bond market, since, especially small communities, do this infrequently, while the professionals on Wall Street know many angles. (Hamilton Project has another proposal on Municipal Bonds).

(3) Reward-It-Third Our Highway Bank would require Benefit/Cost analysis. Outperforming projects would get a rate subsidy from the Highway Performance Fund (basically funded by the profits of the Highway Bank). This would help encourage jurisdictions to under-sell their projects (under-estimating demand and over-estimating costs) so that they can outperform, rather than the current strategy of over-selling the projects (over-estimating demand and under-estimating costs) to get initial funding.

The administration also proposed cutting red tape. That sounds like a good idea.

UPDATE, 6/23, 8:15 A.M.: NTSB’s Debbie Hersman this morning confirms that the the striking train was a 1000-series car and that the struck train was a mix of 3000- and 5000-series. She notes that the NTSB has “long been on record” about the crashworthiness of the 1000 series. “We recommended to WMATA to either retrofit those cars or phase them out of service,” she says. “Those concerns were not addressed.”

Perhaps we need to apply the environmental movement’s Fix It First logic to public transport systems as well as roads and bridges.
We let our politicians get away with ribbon cuttings while core infrastructure fails.